Nic Cicutti: Well done Neil Liversidge

Forgive me if, this week, rather than talk about one issue, I choose to bring three of them together. You may feel, after reading this column, that my “segueing” skills are lacking – and, if so, my apologies.

It’s just that, having commented on the fascinating debate between the BBC’s Paul Lewis and Aifa council member Neil Liversidge in Money Marketing last week, I ended up missing out on another crucial topic that I had originally pencilled in for discussion. In turn, that has led to another couple of stray thoughts I would like to share with you.

OK, so the three issues I want to write about this week are: the FSA’s consultation document on simplified advice, the role of Aifa and Neil Liversidge himself.

First, the FSA consultation document. There is no doubt whatsoever that, in its current form, what it proposes is a massive victory for IFAs. Against what I can only imagine must have been a superhuman lobbying efforts by some sections of the industry, the regulator has restated that regardless of what it is called or how it is offered, this kind of “advice” must still meet the same high standards as other forms of financial advice.

There are a number of key principles that stand out in the FSA paper. First and foremost is that just because a client is going through the simplified advice process, as opposed to something different, the firm concerned is still required to ensure its advice is suitable.

Moreover, if the client has existing investments, the “adviser” must not only ascertain this fact but ask whether they want those investments to be considered alongside the ones that are being sold through the new process. If they do, then the simplified advice process is effectively over.

In addition, the process itself must take into account the client’s existing levels of debt, leaving it open that the only sensible advice one might be able to give is for the debt to be repaid rather than make a new investment.

All of this and underlying the entire process, those giving advice must be qualified to the same standards as advisers more generally – in other words, they must meet the same level four qualification requirement as for the rest of the industry.

As someone who has campaigned for years against the relaxation of rules relating to simplified advice of any sort, this is welcome news. It means that it will be infinitely more difficult for banks and other providers to launch a “pile-it-high, sell-it-cheap” operation, staffed by semi-qualified operatives adhering to minor controls over their practices. From a consumer point of view, I think that’s great.

The FSA document also helps IFAs by maintaining some form of level playing field between themselves and the banks. The lesson here is that the next time someone within the IFA community is tempted to slag off the regulator for continually disadvantaging the independent sector, don’t overlook this small gift horse – it could have gone badly wrong.

Which brings me on to the next subject – what was the genesis of this FSA document? What I mean by this question is that, generally, a set of ideas that come together in a consultation document tend to be created by one or more individuals who are themselves informed by the opinions of others. In other words, lobbying takes place, with different sides competing to put their views forward as to the way forward in the document itself.

Now, I have no doubt Aifa was involved in such lobbying to the best extent of its abilities. But what is also clear is that, in all of its pronouncements on so many industry issues over the past couple of years, I have read very little on this particular subject compared with other professional bodies such as the IFP which has had so much more to say about simplified advice.

Let’s face it, had Aifa’s lobbying on this issue been a major contributory factor to the FSA’s document, they would have been whispering it from the rooftops. The trade body’s relative silence tells its own story.

What strikes me about the past 10 months or so since the accession of a new director general at Aifa’s helm is that for all the big noise about strategic reviews, the only pronouncement I have seen in all that time was about whether to allow restricted advisers to remain in or join the trade body after 2012.

What about all the other big ideas meant to be making Aifa “fit for purpose” in the new regulatory environment to quote Stephen Gay? Surely he can’t be saying that, bar the issue of restricted advisers, the rest of Aifa and the way it represents members is genuinely fit for purpose?

Which brings me on to Neil Liversidge. Regardless of whether I agree with him, in the 10 months since he came on to the Aifa council, there is no question that he has taken on a major role in speaking out for IFAs.

In so doing, he is one of the few Aifa representatives with any credibility among rank-and-file advisers. The danger is that he might end up as a tame John Prescott, playing warm-up man to Aifa’s Tony Blair. Thankfully there is no evidence of that, so far. Well done that man.

The regulators take up ideas presented to them in a way they think they understand, usually it is the big boys who ‘guide’ policy. When you look into who invented the term ‘Simplified advice’ it become clear what the vested interests had in mind. Many people voiced their concerns about this both in public and, more importantly, in private behind the scenes.

On the subject of AIFA, I have always kept in touch with the DG and a couple of weeks ago I met Steve, he is a good man who faces some tough choices but I’m sure he will win through with the help of his contacts among providers. My thoughts are that IFAs should back him and match what the providers may offer to put the trade body back on the rails.

As far as the rest of us are concerned I’m sure there will be times when we may be ridiculed and insulted whether it is justified or otherwise, however it is a fact that AIFA (Steve) sees the need for a few people who speak their minds with sincerity. Even if it makes sometimes makes him feel like putting his hands over his ears and shutting his eyes.

I share your high regard for Neil Liversidge and for his contribution to debate in the IFA sector and will immediately declare my interest as a fellow AIFA council member. Perhaps Neil’s opinion of the extent of the contribution of his fellow council members and of Steve Gay is more informed than yours Mr Cicutti. I suggest you consult him before making such potentially inflammatory observations.

I have just finished reading the FSA’s consultation paper on simplified advice. What strikes me is the consistency of intent between it and the FSA’s guidance paper on suitability issued in January. If the FSA has its way there will be no ‘integrity arbitrage’ between comprensive and limited advice. When a member of the public seeks investment advice he or she will know that the same levels of transparency and process will be applied. This has to be good for every one involved in the supply chain other than those seeking a quick and nasty sale. Trust in financial advice is at a low through out the world. My sense is that it is only through presecriptiv rules such as this that we can reinvigorate the confidence levels required to encourage capital formation. Without capital we are truly destined to a miserable future.

Apart from the inconvenience of their sales consultants being required to achieve the same qualifications benchmark as everybody else, I’m not sure I see how the banks are likely to change their current business model of pile ’em high and sell ’em expensive. Given that they’re neither interested in or authorised to advise on any investments or other provisions that their customers may already hold, how could they or why would they even try?

And just how many IFA’s are likely to be interested in offering a simplified advice proposition, focussing on just one thing and ignoring everything else? It just isn’t in our DNA. And if all the usual suitability criteria will still have to be met, with the open ended liability that entails, who amongst us would want to?

I just don’t see any likelihood of simplified advice ever getting off the ground.